Credit card holders plan to vote with their feet

Consumers with dormant credit cards plan to hold up the red card to inactivity fees – stating almost unanimously they will revolt and bin their providers should these charges be introduced.

New research from moneysupermarket.com’s forum shows just over 73 per cent of people with inactive credit cards plan to close their dormant accounts if the provider introduces a fee for inactivity, as recently implemented by Lloyds TSB. Additionally, to avoid these fees, just under 26 per cent would switch to another card and less than one per cent would start spending again.

Rob Kenley, head of credit cards at moneysupermarket.com, said: “Consumers, with the help of regulatory bodies, are really getting tough when it comes to their finances. The revolt against existing charges applied to other products within a typical financial portfolio is apparent enough, but as credit card providers plan to introduce new fees, it’s clear how people plan to respond.”

The credit card landscape has changed over the past few years and with the introduction of new fees it has become a minefield for customers. Over the past couple of years we have seen the introduction of balance transfer, monthly in-credit and inactivity fees. People now face the challenge of working out which deal is the best for them while factoring in these new charges – card users are damned if they do and damned if they don’t. However, the fact is that balance transfer (BT) fees, which were first introduced in August 2004, have now become the norm and it is accepted that this is the cost for the privilege of having a 0 per cent introductory period - only two providers now exist which don’t charge a BT fee on 0 per cent balance transfers – Norwich and Peterborough (N&P) – though this offer can only be taken up by existing customers - and ICICI Bank on its platinum card.

Rob continued: “Of late, providers have been under the scrutiny of regulatory bodies which are seriously clamping down on foul and unfair play. This, along with the ethos of ‘Treating Customers Fairly’ (TCF), puts consumers in a strong position to challenge the providers when they feel they have been subjected to unjustified fees.

“Within the credit card arena it is difficult to ascertain whether the lenders are actually trying to tackle dormant accounts, which carry a small amount of administration cost, or whether they are hoping to encourage card-holders to spend again. Simply, customers with these accounts are deemed worthless, since they do not bring in any money. Yet I believe credit card providers have created their own monster – I imagine most of these cards remain unused in the wake of the ‘rate tart’ phenomenon. Either way, consumers won’t be taking the fees on the chin – they’ll be voting with their feet.”

People need to choose the best card for their needs – research from moneysupermarket.com last August showed more than three million (10 per cent) of the UK’s 31.6 million card holders could have picked the wrong card for their needs. For example, the statistics showed almost half (48 per cent) of all card holders claimed they mainly used their credit card to make purchases – yet only 11 per cent chose their card because it offered a low interest rate for this purpose.

Rob concluded: “moneysupermarket.com urges people to make sure they keep an eye on the fees being introduced and swap to another card if they feel they are facing unfair charges. Additionally, card holders should make sure they have the correct card for their needs, such as a 0 per cent introductory offer for purchases if this is to be the sole use of the card, otherwise high APRs could be another burn on the pocket.”